Sun restructures, lays off up to 6,000

Company will realign its software organization into new business groups with a focus on open source and new market sectors.

Update 8:42 a.m. PST: Stock market and analyst reaction have been added.

Sun Microsystems announced Friday a restructuring that involves layoffs of 15 percent to 18 percent of its global workforce.

The company's reorganization of its software operations includes the departure of Rich Green, executive vice president of software.

Sun's restructuring will result in a charge of between $500 million and $600 million over the next 12 months, with about $375 million to $450 million coming in the current 2009 fiscal year.

Sun Microsystems art

The company said it should start seeing cost savings in the third quarter of the current fiscal year. Sun expects the restructuring to save it between $700 million and $800 million annually.

Sun will realign its software organization into new business groups: Application Platform Software, Systems Platforms, and Cloud Computing & Developer Platforms, with a focus on "boosting open-source momentum and growing new sectors of the market who view technology as a competitive weapon."

Chief Marketing Officer Anil Gadre will run the Application Platform group, which will include the company's Java technology franchise, MySQL open-source database product, the GlassFish Application Server, and the Sun Learning Services organization.

The Systems Platform group will be led by John Fowler and include Solaris Virtualization and systems management software.

Dave Douglas will lead the Cloud computing group, which will include Network.com, the NetBeans developer platform, and the StarOffice portfolio.

Sun announced a 7 percent drop in fiscal first-quarter revenue last month , coming in the midrange of its previously lowered earnings forecast.

Sun's stock opened lower. But by 8:25 a.m. PST, it was down just 2 cents at $4.06.

At least one analyst thinks the cuts are not enough.

Toni Sacconaghi, an analyst with Sanford C. Bernstein, said in a research note that Sun could "return to reasonable levels of profitability if it underwent an aggressive workforce reduction: We estimate that a cut of 20 percent of total headcount (6,700 people) could drive operating margins of 7 percent-plus (vs. -0.5 percent expected for FY09), yielding EPS of around $1.00."

Sacconaghi, who has a $6 price target for Sun, warned short-term investors that Sun's declining gross margins are likely to continue given the pressure its traditional high-end business is putting on its financial results. But for long-term investors, Sacconaghi sounded a bit more bullish, noting Sun is attractively priced right now. Over time, he noted, the potential exists for Sun to increase its operating margins if management aggressively keeps its costs in check, which eventually could leave to profitability.

CNET News' Dawn Kawamoto contributed to this report.

 

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